By Bob Willis Dec. 11 (Bloomberg) -- The U.S. trade deficit unexpectedly widened in October as faltering global demand led to a third consecutive drop in exports, signaling the American economy is sinking even faster than previously estimated. The gap expanded 1.1 percent to $57.2 billion from a revised $56.6 billion in September, the Commerce Department said today in Washington. Exports dropped to the lowest level in seven months as foreign purchases of U.S. aircraft, automobiles, chemicals and food waned. The global credit crunch is slowing growth in Europe, Asia and Latin America, indicating the U.S. can no longer count on gains in trade to help offset the recessions in housing and manufacturing. American households and businesses are also retrenching, a sign that purchases of foreign oil, televisions and computers will keep softening. “Trade is going to be a significant drag on fourth-quarter growth,” said Dean Maki, co-head of U.S. economic research at Barclays Capital Inc. “The slowdown in foreign demand is hitting manufacturing.” Jobless Claims Another government report today showed the number of Americans filing first-time claims for unemployment benefits surged more than forecast last week to a 26-year high. Initial jobless claims increased 58,000 to 573,000 in the week ended Dec. 6 from 515,000 the previous week, the Labor Department said. The number of workers staying on benefit rolls gained to 4.429 million. The trade gap was projected to narrow to $53.5 billion from an initially reported $56.5 billion in September, according to the median forecast in a Bloomberg News survey of 70 economists. Estimates ranged from deficits of $47 billion to $57.5 billion. After eliminating the influence of prices, which are the numbers used to calculate gross domestic product, the deficit surged to $46.4 billion from $42 billion in September. Another Labor Department report showed prices of goods imported into the U.S. plunged in November by the most on record. The 6.7 percent drop in the import price index followed a 5.4 percent decline the prior month. Prices excluding fuel fell 1.8 percent and the cost of imported petroleum plummeted a record 25.8 percent. Hurt Growth The jump signals trade may subtract from fourth-quarter growth after adding 1.1 percentage points in the previous three months when the economy shrank at a 0.5 percent rate. The already year-long U.S. recession is likely to be the longest in the postwar era, according to economists surveyed this month by Bloomberg News. Exports dropped 2.2 percent to $151.7 billion, reflecting a broad-based retreat in demand for American products. Japan’s economy will shrink 0.2 percent in 2009, while the euro area will contract 0.5 percent, according to a revised forecast by the International Monetary Fund last month. Its global growth estimate for 2009 was scaled back to 2.2 percent from 3.7 percent this year. John Lipsky, the IMF’s first deputy managing director, yesterday said the lender will probably reduce its global growth forecasts again next month. Higher Dollar A rebound in the value of the dollar, by making American- made products more expensive to overseas buyers, is contributing to the dimming outlook for U.S. exports. The dollar jumped 17 percent from mid-July to the end of November, reaching the highest level in three years on Nov. 21, according to figures from the Federal Reserve. Cummins Inc., the maker of more than a third of North America’s heavy-duty truck engines, said this month it will eliminate at least 500 jobs by the end of the year because of “continued deterioration” in the U.S. economy and other key markets. Cummins said in October that sales growth will be about 12 percent this year, lower than it previously forecast, as the U.S. and European economies weakened. “Cummins already has taken a number of actions across the company to try to bring costs in line with our reduced current demand,” Chief Executive Officer Tim Solso said a Dec. 5 statement. “Despite those efforts, we have now reached a point where we will have to take more significant steps to reduce our professional workforce around the world.” Industrials Slump Reflecting the falling demand for machinery, the Standard & Poor’s Industrial Machinery Composite Index yesterday was down 42 percent so far this year, compared with a 39 percent decline for the S&P 500 Index A decline in airplane deliveries by Boeing Co., reflecting the effects of a two-month strike that was resolved Nov. 1, contributed to the softening in American exports. Boeing delivered 4 aircraft overseas in October, down from 6 in the prior month, according to company data. Imports declined 1.3 percent to $208.9 billion, the lowest level since March. Decreases in demand for foreign-produced automobiles, televisions, computers and fuel reflected the worsening slump in U.S. consumer and business spending. Rather than helping shrink the trade gap last month, as most economists predicted, oil contributed to the deterioration. A record $15.56 drop in the price of imported crude in October was swamped by a 70.9 million-barrel jump in purchases that was also the biggest ever, the report showed. Excluding petroleum, the trade gap was little changed at $24.5 billion. International trade next year may shrink 2.1 percent, the first contraction in more than a quarter century, the World Bank said in a report this week. The trade gap with China increased to a record $28 billion from $27.8 billion in the prior month. China surpassed Canada to become the largest source of imports into the U.S. last year. Since it joined the World Trade Organization in 2001, China has also been the fastest growing major export market for American- made products, according to U.S. government data. To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

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